Buy and Hold Investing. Is it the right strategy for you? Answers to follow.

Let’s start off with the answer to the question. Simply put: YES!

But what is a buy and hold strategy? This is one of the more passive ways an investor can grow their portfolio over the long haul. Before we get deeper into the explanation, let us preface with this. Warren Buffet, a name everyone knows and a man who is well respected. One of the wealthiest humans on the planet, praises this strategy of investing.

On the average, passive investors tend to generate higher returns than those who are actively managing their portfolio daily. Now of course, exceptions occur to this, but generally speaking, this is the way to go. But why do this, doesn’t it take the fun out of investing? For most people, they want to park their money, give it to a Financial Advisor and just forget it… and generally, this is the correct attitude.

For starters, we will consider the tax effects. If you were to actively buy and sell daily, you will incur short term capital gains tax. Short term capital gains are the same as ordinary tax rates, dependent upon your income. This could be an extremely high number in some instances as much as 37%. The flip side to this is long term capital gain tax. NOW this is what you want to see. Long term capital gains tax is given for any security ( in this case stocks) generally, dependent upon your income, the maximum you will see is 20%. In most cases it ranges from 10-15%. What is the difference between long term capital gain tax and short term capital gain tax? Short term is for anything you hold under a year. Long term is for anything you hold longer than a year. Very simple.

The most important thing to remember when investing, is to keep investing. In good times and bad times. Lets take a rather simple example. Say you had bought 100 Shares of Apple at $18 a share in January of 2008 and held it until January 2019 when the stock price was $157 a share. That’s an over 900% return in 11 years. However, if you were to actively manage your portfolio and sold when the stock bounced to say $30 a share, you would miss out on another 120 point move.

The last thing I will leave you with is this, historically if you miss the 10 best days of the market run over a 10 year period, because you are actively managing your portfolio, you will miss a large percentage return on your portfolio. ALWAYS STAY IN THE MARKET. Good times and bad, always keep investing.

Your future self will thank you!